Zen Manufacturing Inc. is a multinational firm with sales and manufacturing units in 15 countries....
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Zen Manufacturing Inc. is a multinational firm with sales and manufacturing units in 15 countries. One of its manufacturing units, in country X, sells its product to a retail unit in country Y for $364,000. The unit in country X has manufacturing costs of $190,000 for these products. The retail unit in country Y sells the product to final customers for $490,000. Zen is considering adjusting its transfer prices to reduce overall corporate tax liability. Required: 1. Assume that both country X and country Y have corporate income tax rates of 40% and that no special tax treaties or benefits apply to Zen. What would be the effect on Zen's total tax burden if the manufacturing unit raises its price from $364,000 to $436,800? 2. What would be the effect on Zen's total taxes if the manufacturing unit raised its price from $364,0000 to $436,800 and the tax rates in countries X and Y are 20 % and 40 %, respectively? (For all requirements, leave no cell blank; if there is no effect enter "o" and select "No effect" from dropdown.) 1. Effect on Zen's total tax when tax rates are same in both the countries 29,120 Increase $ 2. 34,840 Decrease Effect on Zen's total tax when tax rates are different in countries X and Y
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